New Jersey Employment Lawyer Blog
The regulations do not create a new law or a new test. The NJDOL describes them as “guidance” on the ABC test, which has governed unemployment coverage since 1936. In Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015), the New Jersey Supreme Court held that the same test governs employee status under the WPL and the WHL. What the regulations add is detail about how each part of that test applies. Rabner Baumgart Ben-Asher & Nirenberg, P.C. represents New Jersey workers in wage and hour disputes, including workers who have been misclassified as contractors.
Who Has to Prove Independent Contractor Status?
The ABC test is the three-part standard that New Jersey courts and agencies use to determine whether a worker is an employee or an independent contractor. Under it, the worker is an employee unless the business proves all three parts of the test. The new regulations confirm the burden of proof is on the business, which the regulations call the “putative employer.” A business that fails any one prong of the test has not shown the worker is a contractor.
The ABC test asks whether (A) the worker is free from the business’s control or direction, (B) whether the work is outside the business’s usual course of business, or performed outside all of its places of business, and (C) whether the worker is customarily engaged in an independently established trade, occupation, profession, or business. If the answer to any of those questions is “no,” then the worker is an employee.
What the Regulations Say About Control, Place of Work, and Independent Businesses
Under the control prong, the business must show it does not control or direct the work, and that it has not reserved the right to do so. The regulations state that a business need not control every facet of a person’s work for that person to be an employee. They list nine factors, including whether the business sets the worker’s hours, requires specific tools or a uniform, fixes the rate of pay, or provides training. Other factors include whether the worker must be on call, and whether the business limits the worker’s other clients. The factors are not a checklist. Further, the regulations clarify that steps a business takes only to comply with the law are not, on their own, evidence of control.
A business can meet the second prong of the test in either of two ways. First, the business can show that the work is outside its usual course of business. The usual course of business can include any activity the business regularly engages in to generate revenue or provide its goods or services. Second, the business can show that the work happens outside all of its places of business. Those places include not only offices, but also any location where it conducts an integral part of its business. A worker’s own home is not considered a company’s place of business for someone who works remotely.
The third prong of the test asks whether the worker has a business that is stable and lasting, and able to survive the end of the relationship with the business. The regulations identify several facts that are relevant, but do not satisfy this prong on their own:
- Working for more than one company, or holding a full-time or part-time job elsewhere
- Holding a professional license, such as a nursing or law license
- Forming an LLC or other business entity, especially when the company required or encouraged it
- Carrying liability or workers’ compensation insurance that the company required
Reporting a worker’s pay on an IRS Form 1099, instead of a Form W-2, does not make the worker an independent contractor. Neither does a contract that calls the worker an independent contractor. In weighing such a contract, a court or the NJDOL can consider who drafted it and whether its terms were negotiable. It also can consider whether the business could change the terms of the contract, or end the relationship at will.
What Employee Status Means Under the Wage Payment and Wage and Hour Laws
A worker who is an employee under the ABC test is protected by the WPL and the WHL. That includes the state minimum wage and overtime pay at one and one-half times the regular rate for hours over 40 in a workweek, unless an exemption applies. The WPL requires employers to pay employees in full at least twice a month, and bars unauthorized deductions. Under the New Jersey Wage Theft Act, an employee who proves a violation of either of those laws can recover liquidated damages of up to 200 percent of the unpaid (or late paid) wages owed. Claims under each of those statutes can reach back as far as six years.
The new NJDOL regulations do not erase statutory exemptions under the WHL. A worker who is reclassified as an employee still may fall within an exemption from overtime, such as the bona fide executive, administrative, or professional employee exemptions. An overtime claim therefore turns on two questions: whether the worker is an employee, and whether the job is exempt.
If you have been paid as an independent contractor but meet the legal definition of an employee, the new regulations may bear directly on what you are owed. We can analyze it with you. You can call our office at (201) 777-2250 to schedule a consultation.
A Different Test Applies to Whistleblower and Discrimination Claims
The ABC test does not decide employee status for every case. Claims under the Conscientious Employee Protection Act (CEPA) and the New Jersey Law Against Discrimination (LAD) use a different, multi-factor analysis.
CEPA defines an employee as “any individual who performs services for and under the control and direction of an employer for wages or other remuneration,” N.J.S.A. § 34:19-2(b). The New Jersey Supreme Court has said that definition does not explicitly exclude independent contractors. The leading case is D’Annunzio v. Prudential Insurance Co., 192 N.J. 110 (2007), in which the Court held that a chiropractor Prudential had labeled an independent contractor could be an employee for purposes of CEPA.
In CEPA and LAD cases, courts look at the totality of the circumstances. They give particular weight to the employer’s right of control over the worker, the worker’s economic dependence on the relationship, and how far the worker’s services are integrated into the employer’s business. A worker who is an independent contractor under that analysis generally falls outside the LAD’s employment protections. In addition, N.J.S.A. § 10:5-12(l) makes it unlawful to refuse to contract with or do business with any person because of a protected characteristic, so even true independent contractors can have discrimination claims under the LAD.
Talk to a Bergen County Wage and Hour Lawyer About Misclassification
A worker who has been treated as a contractor may have claims for unpaid commissions, overtime and wages that reach back years. The NJDOL’s new regulations give those misclassification claims a clearer framework. Rabner Baumgart Ben-Asher & Nirenberg, P.C. represents employees throughout New Jersey in wage payment, wage and hour, and other misclassification disputes. Please call us at (201) 777-2250 or contact us online to schedule a consultation to discuss your situation with one of our attorneys.